What are Evening Star Candlestick Pattern ?
It is a reversal candlestick pattern which is bearish in nature and appears at the end of an up trend. It is a complex pattern made of three candlelines. The first candle is bullish in nature, the second is indecisive in nature and third candle is bearish in nature.
It is so named because just like the planet Venus, which appears just before the sun set, this pattern appears just before price fall.
This Candlestick Pattern is formed by the combination of three candlesticks. The first one is a rising white candle, the second is a white or black confusion candlestick and the third is a reversal bearish black candlestick.
The market is in an up trend. The price opens at almost low of the day and as usual the buyers continue to buy. At the end of the session the price closes almost at the top for the time period. This results in the formation of bullish white candle, which is the first candle of the Evening Star Candlestick Pattern.
On the next day or next time period the price opens above the high of the real body of the previous bullish candlestick. Buyers are making new long trades. Those who are already long in the market are also adding to their position. But the smart money wants to unload and starts distributing shares to these ignorant buyers. As the supply increases the momentum of rise decreases. Distribution is slow but firm. At the end of the session prices closes near the opening, either just below or just above the open. This results in a small body of the second candlestick.
Next day is the decision day. Bears are aggressive. The price opens below the real body of the previous candlestick. Through out the session the sellers keep selling. Tremendous increase in the supply over the demand drives the prices low. As the new buyers are all in loss, they also start to sell their positions to minimize their losses. Sensing the change in the trend, the old position holders starts booking profits in their long positions. As the bears continue to increase their short position, the price falls further and at the end of the session the price closes well below the open price resulting in a bearish tall black body of the third candlestick of this Evening star pattern.
Evening Star Candlestick Pattern is a major bearish reversal candlestick pattern. They occur at the top of an up trend.
Study the chart given below.
It is obvious that the sellers are taking over the control of the market. It signifies that the top reversal has occurred. The third candlestick confirms the top reversal.
The first one is a white candle, which signifies the ongoing up trend.
On the next day, though the stock opens above the high of the previous day's real body, the supply increases or the demand decreases, so that the momentum of the rising market decreases. The stock closes near the opening, either above or below the opening, but above the close of the previous day. This creates a black or white candle with a small real body.
On the third day, with the bears dominating, the market opens below the real body of the second day, falls down and closes low to create a long black candle.
This is a clear indication of the bearish reversal of the market.
Sometime the gap up opening of the second candlestick or the gap down opening of the third candlestick may not be obvious.
The significance of this Evening Star Candlestick Pattern increases if the third day's opening is above a resistance area and the close is below the resistance area. If the third candle is a black marubozu or with a shaven head or shaven bottom, it speaks of the more bearishness of the market. Its importance is even more if it is accompanied by increased volume.
If you are holding a long position, Evening Star Pattern should alert you to take action the next day. One can cover her long position below the low of the third day's black candle.
A short trade can be initiated below the low of the third day's black candle. Place a buy on stop order above the high of the pattern to limit your loss, in case the up trend continues to go up.
Sometime first day's real body can be black, if it is a very small body. First day can also be a doji.
Evening Star Candlestick Pattern may occur along an up trend without a reversal. It only exhibits a minor profit booking by bears.
Counter part of this pattern in a candle chart is Morning Star.
The second day candle may be a doji, which results in Evening Doji Star.
Click on the links below to read about them.
There are many more complex candlestick patterns used in stock analysis. Some of them are listed below. You may click on the name of each pattern listed below to learn and understand more about them.
Dark cloud cover is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
Piercing Pattern is a bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
Bullish Engulfing Pattern is a major bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
Bearish Engulfing Pattern is a major bearish reversal candlesticks pattern. They occur at the top of an up trend.
Morning Star is a bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
Morning Doji Star is a bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
Evening Doji Star is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
Three White Soldiers is a candlesticks pattern formed by a group of three white candles, which shows the strength of the advancing market.
Three Black Crows is a candlesticks pattern formed by a group of three black candles, which shows the strength of the declining market.
Harami is a candlesticks pattern, which shows the indecision of the market. In Japanese language, it means, pregnant. It is made of two candles, one containing the other.
Gaps are continuation chart pattern, formed by an unfilled space between two trading session. Gaps are referred as Tasuki, meaning window in candlestick charting.
Island Formation is a reversal chart pattern, formed by price action in a group of multiple time period, which is separated from rest of the price action by gaps. It is very reliable with 80% probability.
Abandoned Baby is a reversal chart pattern, formed by price action in a single time period, which is separated from rest of the price action by gaps. It is very reliable with 80% probability.
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